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Windows vs. Linux: The Patent Tax

With tax day approaching in America, we at the Software Freedom Law
Center wanted to share some important information about the hidden
taxes added to every copy of Microsoft's Windows operating system. If
you run a computer using Windows, you're not just paying for the
programmers who put the program together and the corporate operations
that brought it to market. You're also paying a hidden tax of well
over $20 that Microsoft has had to pay to other patent holders. This
is true whether you bought your copy of Windows on CD or pre-installed
on a laptop, desktop, or server machine.

While $20 might not sound like a lot, it adds up pretty quickly. A
school with only 50 Windows machines — barely enough for one
class of students — is paying $1,000 of its limited budget in
patent tax, rather than buying books or other useful supplies. A
government agency with a mere couple hundred Windows machines is
paying many thousands of taxpayer dollars in patent tax.

On the other hand, free operating systems based on Linux have never
been found guilty of patent infringement, making Linux a
patent-tax-free alternative to Windows. Not only do these free
software systems have no patent tax, they have no taxes whatsoever,
because — like all open source software — they are
available to the public at zero cost.

Operating System

The Patent Tax (per copy)

Microsoft Windows

$20

Linux

$0

Patent Payouts

In the last three years, Microsoft has publicly paid out more than
four billion dollars to plaintiffs claiming that Microsoft's Windows
and Office products infringed their patents. From April 2004 through
March 2007, Microsoft paid settlements and court awards of $1.25
billion to Sun Microsystems, $536 million to Novell, $440 million to
InterTrust, $60 million to Burst.com, $6 million to private inventor
Carlos Amado, $115 million to z4 Technologies, $74 million to Korean
company P&IB, and most recently, $1.52 billion to Alcatel-Lucent over
patents allegedly infringed by Microsoft's software. These payouts
exclude several high-profile secret settlements during the same
period, such as the 2005 accords reached with AT&T and Alacritel, each
of whom was asking for hundreds of millions in damages. They also
exclude the billions Microsoft has paid in antitrust awards related to
patent issues.

Added to this $4-billion-plus pile of patent payouts are the
enormous legal fees Microsoft has racked up defending those
cases. Brad Smith, Microsoft's General Counsel, said in a 2005
interview that the company “typically spend[s] close to US$100
million annually to defend against an average of 35 - 40 patent
lawsuits simultaneously.” This means that the company's patent
litigation expenses for that three-year period exceed $4.3 billion:
over $4 billion in payouts, plus $300 million in legal fees.

Cost To The Customer

How does this bill get split up among Microsoft's customers?
Microsoft estimated in 2004 that 600 million Windows machines were
deployed worldwide, and anticipated a total of 1 billion machines
running Windows by 2010. These numbers are consistent with the figures
on Windows XP adoption from 2001 to 2004, which were estimated at 210
million installations. Using this estimate of 200 million new Windows
installations every three years, this means that each of the 200
million new Windows machines is on the hook for over $21.50 in patent
taxes, plus their share of the secret settlements Microsoft reached in
those three years.

In fact, this number is probably much higher for licensed Windows
users in North America and Europe. The Windows numbers from Microsoft
are almost certainly inflated, which means a bigger share of patent
taxes for each actual user. Customers in Europe and North America pay
more for Windows licenses than in less affluent countries, leaving
them with a bigger slice of the patent tax pie. And many Windows
installations are unlicensed, meaning that those users' share of the
patent tax gets passed on to paying customers.

Why Do You Call It A Patent “Tax”?

Patents are granted and enforced by the federal government, who before
1989 did not allow patents on software. In that year, the federal
courts declared software algorithms to be patentable, despite the fact
that the software industry had been booming without government
intervention in the form of patents. Today, software developers
continue to pay patent holders for permission to distribute their own
programs, and the government continues to enforce this scheme.